In today’s interconnected world, the investment landscape is profoundly influenced by both global and local politics. From international trade agreements and diplomatic relations to regional conflicts and political stability, these factors play a crucial role in shaping investor sentiment and market dynamics. At Unio Wealth Management, understanding this interplay is crucial for navigating the complexities of financial markets and helping our clients maximise their financial lives and potential futures.
Ireland is interesting in that it continues to be a very open economy – exposed to global forces, but that has so far proven its resilience. We are a democratic outlier. Unlike so many other countries in this ‘year of elections’ there will be fundamentally little change in the governance of the state. At the time of writing, it looks like Fine Gael and Fianna Fail will continue in power, supported either by Labour or a more disparate group of independents. Amidst low turnout, the other trend is the evolution of the political system in terms of a block of four or more parties on the left, and a relatively high number of independents.
If Ireland demonstrates an outward form of stability, the world around it is changing in a way not seen since the early 1990′s. Political debate in Europe is dominated by issues that have made no imprint on the election campaign in Ireland – defence and security with a focus on the threat to Europe from Russia, and increasingly the role of China as a bad actor, the need to boost investment in ‘strategic autonomy’ sectors (from AI to quantum to defence ‘deep’ tech). Then, the really significant change is the more mercantilist stance that America will take to the rest of the world, and the risks to the rules based international system that has been cultivated by so many American presidents.
In this respect, like many other countries Ireland risks a diplomatic crash. By this I mean that a host of countries have invested diplomatically, or in terms of soft power, in institutions, partnerships and causes. The acceleration of a multipolar world by the second Trump presidency will crash the value of many of these diplomatic investments.
An example might be the ‘special relationship’ between the UK and the US, and indeed the close relationship between Ireland and the US.
‘Political debate in Europe is dominated by issues that have made no imprint on the election campaign in Ireland’
More broadly Ireland has, correctly, invested heavily in the UN and the rules-based order. Some of the pillars of this order, like the World Trade Organisation – effectively built by an Irishman (Peter Sutherland) – are in a state of dereliction. It may well be the case that the UN ceases to be effective in dispute resolution between states, world health policy and great power coordination.
In addition, together with Spain and Norway, Ireland has spent significant geopolitical capital supporting Palestine (all three countries recognised Palestine as a state). Here, it cannot be ruled out that a grand peace deal is made in the Middle East, between Israel, Egypt, the UAE and Saudi Arabia, whose goal is to create greater investment and commercial flows between these countries and strategically disable Iran, but whose outcome is to render the ‘two-state’ solution unachievable. This new, harsh reality would leave the humanitarian-led foreign policies of many European countries well ‘off-side’, compared to the stance of the Trump administration.
Economically, the great challenge will come from the spill-over effects of the Trump administration. His key proposed appointments – notably Scott Bessent and Marco Rubio as Treasury Secretary and Secretary of State, would not be out of place in any of the Republican administrations of the past fifty years, and Bessent in particular has a large stock of credibility on Wall Street and the wider economics community. His personal view of tariffs is that they are a negotiating tactic, best deployed to shape trading and financial relations with other countries.
While there is great concern over the potential impact of tariffs on Ireland, there may be two reasons to be less pessimistic. First, the Trump administration will cause enormous macroeconomic and diplomatic volatility if it imposes tariffs on allies and competitors at the same time. If his ultimate objective is to disable China as an economic power, he may well need to have allied economies like South Korea, Japan and the EU onside. Second, in many cases, American multinationals are deeply embedded in the Irish economy, which makes a retracement of foreign direct investment difficult. Still, the inevitable tariff negotiation between the EU and the US will entail close solidarity between EU nations, and its implications could well extend to the forthcoming debate on EU defence spending (an EU missile defence shield will cost up to Eur 500bn).
The understated risk to the rest of the world of the Trump economic policy package is that the White House tries to run the economy ‘hot’, and in turn this produces another phase of inflation, and rising interest rates.
Then in terms of domestic fiscal policy, the central concern must be the effectiveness of state spending. While optically, Ireland has a strong fiscal position, it in effect has large unfunded liabilities to meet in terms of bringing its defence infrastructure up to the level of peer states like Denmark and Norway, and in terms of the long-term capital required to offset the impact of climate change on land and infrastructure (flooding in Spain is a reminder). Alongside this is the need to better fund universities and create centres of excellence in research.
It could be hoped that the fiscal debate will shift from the quantum of money that the government needs to deploy on infrastructure and housing, to the method by which these assets are built. If Ireland is richer (per capita) than most of its European peers, it lacks institutionalised know-how in infrastructure – from building apartments like the Austrians, to railways like the French and hospitals like the Swiss. In that respect, the post-election period offers a chance to stop and take stock of what has been done on infrastructure so far and seek the expertise of other EU countries for what needs to be built for the future.
An important element here is investment, and in time the State will need to think about how to better deploy Irish pension capital in infrastructure, agriculture and homegrown technology firms. Alongside this is the need to build investment infrastructure in the sense of cautiously opening up access to education and portfolio platforms so that households can build long-term investments, a topic that is naturally close to Unio. We flag that there is growing momentum in a ‘savings and investment’ union in Europe, and Ireland should be at the forefront of this.
As we head into 2025, Ireland is an oasis of political stability in a chaotic world. It should use this opportunity to build the capabilities it will need in this fast-changing environment.
At Unio Wealth Management, we help high earners achieve their full financial potential. Using our proprietary wealth planning framework we work with our clients to plan their future and importantly, how to fund it. If you would like to speak to a Unio Wealth Management adviser, visit unio.ie.
Mike O’Sullivan is a director of Unio Wealth Management.
Unio Financial Services Ltd trading as Unio, Unio Wealth Management and Unio Employee Benefits is regulated by the Central Bank of Ireland.
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Publish date : 2024-12-05 21:00:00
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